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Google and tech rivals harness cash reserves to achieve cloud ambitions

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Google and its competitors are wielding a new weapon in the battle for cloud computing market share: significant investments in companies that agree to subscribe to their services.

With Thomas Kurian as Managing Director of Cloud since 2019 after a long tenure at Oracle Corp.

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, the alphabet Inc.

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unit has tapped its $ 142 billion treasure chest to make it more attractive to customers. Google took stakes over the past year in companies such as Univision Communications Inc. and CME Group Inc.,

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in turn, secure multi-year commitments for its cloud service worth up to $ 1 billion or more.

The deals make Google one of the most aggressive of several large companies looking to gain traction on Amazon.com Inc.,

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the cloud market leader. Microsoft Corp.

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has also acquired stakes in several startups as part of operations involving the use of its cloud. And Oracle last year attempted to buy a major stake in TikTok as part of a deal for the China-owned social media app to use its cloud service – and cited the boost to its business. cloud this month by announcing its biggest deal ever, the $ 28.3 billion acquisition of medical records firm Cerner Corp.

Google now claims 6% of the growing cloud market, up 1 percentage point from the previous year.


Photo:

David Paul Morris / Bloomberg News

The fledgling strategy has helped Google increase its market share in a huge and growing industry that is key to its growth. Google now claims 6% of the cloud market, up 1 percentage point from the previous year, but still far behind Amazon’s 41% and Microsoft’s 20%.

“Nobody wants to do this ‘to buy’ customers, but if you’re # 3 or 4 you have to be creative,” said Holger Mueller, analyst at Constellation Research Inc. which focuses on enterprise technologies.

Investments highlight how robust cash flow technology companies give them a huge advantage over their smaller competitors in selling cloud infrastructure services, the core business of providing remote computing power and storage rented. These companies can afford the huge infrastructure investments needed to build multibillion-dollar data centers and subsidize the costs of moving customers to their cloud systems, which is why three companies control two-thirds of the market.

A spokesperson for Google Cloud said it has largely won customers with its capabilities, adding that investments are part of their strategy. “In some cases, Google pursues investments and partnerships in attractive growth areas, which is standard practice for many companies in the enterprise sector,” he said.

Alphabet investors see Google Cloud as its most promising area of ​​growth and the best chance to diversify beyond the online advertising industry which accounts for 80% of sales. The cloud unit, which began publishing financial data in 2020, recorded more revenue in the first nine months of 2021 than for all of 2020, and is expected to grow 50% to $ 19.26 billion. dollars for the entire year.

These gains resulted in high costs, with the company aggressively spending to develop the infrastructure and expand its sales team. Google Cloud during the January-September period halved its operating loss from the previous year, to $ 2.2 billion.

Google’s offerings have covered customers of different sizes and industries. In just over a year, he invested $ 1 billion in futures exchange firm CME Group; $ 450 million in home security provider ADT Inc.

; and undisclosed sums at Spanish-language media company Univision and health-tech startup Tempus Labs Inc. All have signed long-term cloud computing contracts with Google.

Mr. Kurian played a central role in launching the investment strategy, former Google Cloud executives said. Before its arrival from Oracle, Google had made it a priority to develop new technologies to attract customers to traditional sales. He revamped his approach, adding more sales staff and softening performance bonuses.

Microsoft announced investment and cloud deal with food delivery startup Grab Holdings Ltd.

in 2018. Kurian pioneered the idea of ​​adopting a similar strategy to catch up with rivals, former Google Cloud executives said. The investments were aimed at giving businesses another reason to choose Google over its competitors and to convince them that Google was financially committed to developing technology for the benefit of their businesses.

Microsoft continued to leverage investments in emerging startups to forge partnerships in the cloud, with one of its biggest bets being a stake in General Motors. Co.

Cruise, the driverless car startup. Under the agreement, Cruise will use Microsoft’s Azure cloud computing platform to deploy its autonomous vehicle services.

As Microsoft proceeded, Google followed suit, participating in a $ 200 million investment round for Chicago-based Tempus, which uses artificial intelligence to improve patient care. As part of the 2020 investment, Google has offered significant discounts to Tempus to move to its cloud from Amazon, a person familiar with the details of the deal said.

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As part of the deal, Tempus agreed to spend at least $ 20 million in the first year on Google Cloud, the person said, which means Google’s revenue from the deal could exceed its investment within a few months. years.

Tempus did not respond to requests for comment. The chief executive of Univision said Google’s investment was a business negotiation separate from the cloud deal, but called Google a true partner engaged in the evolution of its business.

The research company has taken a broader approach with its partnership with ADT. In 2018, the home security company was looking to move some of its on-premises data to the cloud, said Don Young, COO of ADT. He met with representatives from Google who ultimately came up with a deal that went beyond cloud computing to include a partnership between ADT and Google’s smart home company Nest, as well as a $ 450 million investment in ADT. .

Mr Young said ADT would have put some data in Google Cloud regardless of the investment, but added that the company has increased spending on Google cloud services since then.

“We would have done a cloud deal, yes,” Young said. “But the exact cloud deal we made? I am not sure.”

During negotiations to move his business system to Google Cloud, CME Group CEO Terry Duffy invested in his company, the key to a deal. “I wanted a partner, not just a cloud provider,” Mr. Duffy said in an interview.

Mr. Kurian said at the time: “Investing in stocks is a representation of our commitment.” He said he made sure Google would assign its best people to support CME Group’s cloud efforts.

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Write to Tripp Mickle at [email protected] and Aaron Tilley at [email protected]

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